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Simple English definitions for legal terms
Federal Reserve System
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A quick definition of Federal Reserve System:
The Federal Reserve System is like a big bank that helps control how much money is in the country. It was created in 1913 and has 12 smaller banks that work together. The people who run the Federal Reserve System make rules about how much money banks have to keep in reserve and how much they can lend out. They also set the interest rate that banks have to pay when they borrow money from the Federal Reserve System. The goal is to keep the economy stable and make sure there is enough money for people to use.
A more thorough explanation:
The Federal Reserve System is the central bank of the United States. It is responsible for setting credit and monetary policies, regulating the amount of credit that can be extended on any security, and determining the reserves that depository institutions must maintain. The Federal Reserve System was established by the Federal Reserve Act of 1913 and is made up of 12 central banks supervised by a Board of Governors.
For example, if the Federal Reserve System determines that the economy needs a boost, it may lower the discount rate charged by Federal Reserve Banks, making it cheaper for banks to borrow money. This can encourage banks to lend more money to businesses and individuals, which can stimulate economic growth.
Another example is if the Federal Reserve System determines that inflation is becoming a problem, it may increase the reserves that depository institutions must maintain. This can reduce the amount of money available for lending, which can help to slow down inflation.
federal reserve note | Federal Retirement Thrift Investment Board